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What is the Difference Between a Mortgage Prequalification and Preapproval?
Dated: September 4 2018
Mortgage prequalification and preapproval are two terms often spoken by lenders. It can be confusing if you aren’t sure what the difference is between the two.
Mortgage pre-qualification is the first step in your mortgage process. It is when the bank or lender gives you an estimate of how much of a loan you can qualify for when buying a property. The amount is based on your financial assets, income, and liabilities. It’s quick, easy and informal to get a pre-qualification.
Getting a pre-qualification does not result in a commitment from the bank to lend and may not guarantee that you will get the mortgage but it can help set up for success later on. It’ll help you figure out your budget how many homes you can afford.
During the pre-qualification process, your lender can give you an overview of mortgage options that may suit best your situation. But remember, this does not guarantee your loan.
While mortgage preapproval is similar, you can say this is the next step in the mortgage process. It is more formal where you’ll need to complete an official mortgage application. It usually requires an application fee to thoroughly check your credit reports such as your income, assets, and debts. You will also have to supply the bank necessary documentation to verify your financial standing and to confirm your qualification of actually getting a mortgage. With this, lenders can provide you specific figures and rates you are actually approved for.
Depending on what you’re ready for during your home search and purchase, either a mortgage prequalification or pre-approval will be what you need. They can help you get an estimate of the loan amount you qualify for, saving you time since you’ll know the price range to shop for.
In addition, sellers require a prequalification and/or preapproval letter when submitting a non-cash offer. If it is not required, the letter will at least help you stand out in a bidding war. Both can help you show sellers that you are serious and can put you ahead of other competing buyers.
Pre-approved and pre-qualified are not the same. Do your homework to avoid any delays with your home purchase.
The two terms may be confusing and it can be hard to know which is which. Both may be used by lenders interchangeably and it really depends on how your lender defines the service. But the important thing is, the letter has enough information for sellers to take your offer seriously. And we still think the best way to be sure that the letter you get will serve its purpose is to ask your local real estate agent.
Let us help you navigate the home purchase without stress. Call (907) 570-6757 or (907) 720-4663 for a list of trusted lenders and free advice on what to do to save time and money on your home search.
Vanna has called Alaska home for the past 15 years. As a mother, real estate investor and previous business owner, Vanna brings many different perspectives when working for her clients. She has been a....
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